Annual inflation decreased in July while the monthly rate remained unchanged, leading some economists to say it may have peaked for this cycle.
The Consumer Price Index (CPI), a measure of inflation, decreased to 8.5% annually in July, according to the latest report from the Bureau of Labor Statistics (BLS). On a monthly basis, inflation remained unchanged after rising 1.3% in June.
The price of gasoline fell 7.7% in July, offsetting increased costs in food and shelter, according to the report. The energy index also declined 4.6% over the month, even as costs for electricity increased.
"This is a good number," Rusty Vanneman, Orion Advisor Solutions chief investment strategist, said in a statement. "If this is truly the peak in inflation, this could officially signal an economic tide shift that both consumers and investors can appreciate. This also fortifies the good news that both consumer-based and market-based expectations of future inflation are also falling.
"That said, the absolute level of inflation remains painfully high and the risk of being a false peak remains, especially given that two important drivers of inflation are still troublesome: wages and housing," Vanneman said.
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Consumers grow more optimistic about the economy
Amid the shift in prices, especially for gas, one economist said that consumers are feeling more optimistic about the current state of the economy and future economic growth.
"Prices may have remained constant in July, but consumers are noticeably more optimistic now than they were a month ago," Morning Consult Chief Economists John Leer said. "In the eyes of consumers, falling gas prices are a harbinger of improving personal finances and lower inflation. Having said that, growing consumer optimism doesn't change the fact that inflation remains well above the Fed's 2% target."
A previous report from the Morning Consult said that older Americans are growing increasingly concerned about inflation, with about 78% of Baby Boomers and 67% of Gen Xers saying in June that they felt "very concerned" about inflation.
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Federal Reserve to continue raising interest rates
Despite the latest inflation data, it is likely that the Federal Reserve will continue raising the federal funds rate.
The Federal Open Market Committee (FOMC) raised rates at its July meeting by 75 basis points in an effort to combat rising inflation, bringing the target range for the federal funds rate to 2.25% to 2.5%. This marked the fourth time in 2022 that the Fed raised rates.
"We had a strong jobs report and growing wages earlier this week that could potentially signal another aggressive rate hike from the Federal Reserve," Dawit Kebede, Credit Union National Association's senior economist, said in a statement. "However, this inflation report indicates slowing down in some areas despite visible price pressures in others. There will be one more employment and inflation report before the data-driven Federal Reserve meets in September to decide on further rate hike."
Incoming economic data will help the Fed determine how large of an interest rate hike to instate, another economist said.
"Markets are fairly evenly split on whether to expect a 50- or 75-basis point hike from the FOMC in September, and that question will most likely depend on the incoming data over the next month," Curt Long, National Association of Federally-Insured Credit Unions' (NAFCU) chief economist and vice president of research, said in a statement.
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